What is LTV (Lifetime Value) & Why It’s Critical for Advertisers

What is LTV?

LTV stands for Lifetime Value. It’s a metric that tells you how much revenue a user brings in over the entire time they stay a customer. Not just the first sale - the full relationship.

Think about it like this: If someone buys a $30 product once and never comes back, their LTV is $30. But if they spend $30 every month for a year, their LTV jumps to $360.

LTV gives you the full story. It helps you see long-term value, not just the first interaction.

Why Advertisers Should Care

You might be optimizing for cheap clicks or low-cost leads. That’s cool, but it’s not the whole game. The real winners are optimizing for long-term profit - and that’s where LTV comes in.

Here’s why it matters:

• It tells you how much you can afford to spend to acquire a customer.

• It helps you scale campaigns confidently without guessing.

• It makes it easier to spot your most valuable users.

Let’s say two campaigns both bring in leads at $10 each. Campaign A has an average LTV of $25. Campaign B’s users spend $100 over time. Which one would you scale? Easy call.

LTV vs. CPA: A Reality Check

Most marketers look at CPA (cost per acquisition) and want it low. That’s fine. But chasing the lowest CPA can backfire if the users don’t stick around or spend enough.

Example:

• Campaign 1: CPA = $5, LTV = $15

• Campaign 2: CPA = $15, LTV = $80

The second one is clearly more profitable, even though it costs more up front. LTV flips the script on what “good performance” really means.

How to Calculate LTV

The exact formula depends on your business model, but here’s a simple one:

LTV = Average Order Value x Purchase Frequency x Customer Lifespan

If you’re in ecom:

• Average order = $40

• People buy 3 times per year

• Stay customers for 2 years

LTV = $40 x 3 x 2 = $240

If you’re in subscription:

• Monthly payment = $20

• Average user stays for 10 months

LTV = $20 x 10 = $200

You don’t need to overcomplicate it. Even a rough estimate is better than none.

How to Use LTV in Your Ad Strategy

Now for the fun part - using LTV to power your campaigns.

1. Set Smarter CPA Goals

Once you know your average LTV, you can reverse-engineer how much you’re willing to spend per user and still be profitable.

If LTV is $100, maybe you’re fine spending up to $50 to get that customer. Knowing that gives you a lot more room to test and scale.

2. Segment by LTV

Not all users are equal. Some buy once. Some become superfans. Track which traffic sources or targeting segments bring in high-LTV users and put your budget there.

3. Focus on Retention

If your LTV is low, it could be a retention problem. Ads bring people in - your product keeps them. Run campaigns focused on upsells, re-engagement, or loyalty to boost that LTV over time.

4. Build Lookalike Audiences

Platforms like Facebook or TikTok let you build lookalikes based on user actions. If you feed the algorithm your high-LTV customers, it’ll try to find more people like them. That's much better than just optimizing for clicks.

Tools That Help

You can calculate LTV manually in spreadsheets, but most marketers use tools that track it over time. Some good options:

• Google Analytics (with ecommerce or goals setup)

• Shopify or WooCommerce analytics

• Custom dashboards in tools like RedTrack, Hyros, or Triple Whale

• CRM systems like HubSpot or ActiveCampaign

Final Thoughts: Think Beyond the Click

Clicks are great. Conversions are better. But LTV is what really drives profit. If you’re only looking at the front-end numbers, you’re not seeing the full value of your campaigns.

Start tracking LTV. Use it to guide your budget, refine your audience, and scale smarter. It's one of those metrics that separates casual advertisers from real marketers.